Final Results

RNS Number : 5505T

SDI Group PLC

21 July 2020

 

SDI Group plc

("SDI", the "Company" or the "Group")

Final Results for the year ended 30 April 2020

 

SDI Group plc, the AIM quoted Group focused on the design and manufacture of scientific and technology products for use in digital imaging and sensing and control applications, is pleased to announce its final audited results for the year ended 30 April 2020.

Financial Highlights

· Revenue increased 41% to £24.5m (2019: £17.4m)

· Revenue growth both organic (4%) and from acquisitions (36%), reflecting full year contributions from Fistreem International, Thermal Exchange, Graticules Optics and MPB Industries

· Adjusted operating profit* increased 48% to £4.6m (2019: £3.1m)

o  Reported operating profit increased 60% to £3.5m (2019: £2.2m)

· Adjusted profit before tax* increased 44% to £4.3m (2019: £3.0m)

o  Reported profit before tax increased 54% to £3.3m (2019: £2.1m)

· Adjusted diluted EPS* increased 23% to 3.43p (2019: 2.83p)

o  Reported diluted EPS increased 25% to 2.56p (2019: 2.05p)

· Cash generated from operations increased 44% to £5.2m (2019: £3.6m)

· Net debt** at 30 April 2020 of £4.0m (2019: £1.5m)

Operational Highlights

· Acquired Chell Instruments Limited in November 2019, a UK company specialising in the design, manufacture and calibration of pressure, vacuum and gas flow instruments for £5.2m

· Atik Cameras' new larger production site in Lisbon, Portugal became operational in the first quarter of 2020

Ken Ford, Chairman of SDI said:

"We are pleased to report another year of growth in line with expectations, despite the impact of COVID-19. SDI Group has started the new financial year in a strong financial position and a number of our companies have seen increased demand for medical products which are being used to address the COVID-19 challenges. Other companies within the Group face some uncertainty and a downturn in orders although all our manufacturing facilities remain in operation. There are early signs of a return to normality in trading and overall SDI remains profitable and cash generative. For the financial year ending 30 April 2021 the Group expects to report year on year revenue growth and profits at least in line with FY20.

SDI continues to seek acquisitions and looks forward to growing organically and through acquisition as conditions improve."

* before reorganisation costs, acquisition and fundraising costs, amortisation of acquired intangibles and share based payments

** cash and cash equivalents less bank finance but without taking into account lease liabilities on right of use assets

FOR FURTHER INFORMATION

SDI Group plc Ken Ford, Chairman Mike Creedon, Chief Executive Officer Jon Abell, Chief Financial Officer www.thesdigroup.net	01223 727144
finnCap Ltd Ed Frisby/Kate Bannatyne - Corporate Finance Andrew Burdis/Sunila de Silva - ECM	020 7220 0500
JW Communications Julia Wilson - Investor & Public Relations	07818 430 877

This announcement contains inside information for the purposes of Article 7 of Regulation (EU) No 596/2014.

About SDI

SDI designs and manufactures scientific and technology products for use in digital imaging and sensing and control applications including life sciences, healthcare, astronomy, manufacturing, precision optics and art conservation. SDI operates through its company divisions: Atik Cameras, Synoptics, Graticules Optics, Sentek, Astles Control Systems, Applied Thermal Control, MPB Industries and Chell Instruments.

SDI continues to grow by developing its own technology advancements and by improving its global sales channels, as well as through pursuing strategic, complementary acquisitions.

Audited Report and Financial Statements

The results have been extracted from the audited financial statements of the Group for the year ended 30 April 2020.  The results do not constitute statutory accounts within the meaning of Section 434 of the Companies Act 2006.  Whilst the financial information included in this announcement has been computed in accordance with the principles of International Financial Reporting Standards ("IFRS") as adopted by the EU, IFRIC interpretations and Companies Act 2006 that applies to companies reporting under IFRS, this announcement does not itself contain sufficient information to comply with IFRS. The Group will publish full financial statements that comply with IFRS.  The audited financial statements incorporate an unqualified audit report. The Auditor's report on these accounts did not draw attention to any matters by way of emphasis and did not contain statements under S498(2) or (3) Companies Act 2006.

Statutory accounts for the year ended 30 April 2019, which incorporated an unqualified auditor's report, have been filed with the Registrar of Companies.  The Auditor's report on these accounts did not draw attention to any matters by way of emphasis and did not contain statements under S498(2) or (3) Companies Act 2006. The accounting policies applied are consistent with those described in the Annual Report & Accounts for the year ended 30 April 2019, except as described in note 1 below.

The Group's Annual Report for the year ended 30 April 2020 will in due course be available to view on the Company's website: www.thesdigroup.net/investors/reports-presentations/ and be sent to shareholders, together with a notice of AGM which will also be available on the Company's website.

Chairman's Statement

Performance

I am pleased to report that in the financial year ended 30 April 2020, SDI Group plc (SDI) achieved another record year of revenues and pre-tax profits, whilst completing one of our largest acquisitions and managing the disruption of the global pandemic in the final two months of the financial year. Despite the slowdown in orders from March 2020, SDI finished the year with profits in line with market expectations and a strong cash flow, positioning the Group to take advantage of new market opportunities as they may arise.

SDI completed the acquisition of Chell Instruments in November 2019 paying £5.2m for the business, and therefore part-year revenues from this new company are included in this financial year. Chell is a high-quality instrumentation company, reflected by its roster of customers within aerospace and vehicle aerodynamics (including Formula One). It is the Group's tenth acquisition in the past four years, highlighting its buy and build strategy. Chell was identified as an attractive acquisition with a number of parties expressing interest. The fact that SDI was successful supports our belief that SDI is seen by vendors as having a clear strategy with the right cultural fit. The new business has become part of our Sensors and Control segment.

Full year Revenues of £24.5 million show an increase of 41% from 2019 and Adjusted Profit before Tax at £4.3 million is up 45% from the previous year. Reported Profit before Tax has increased by 56% to £3.3m. This performance has been achieved through 3.7% organic sales growth from the businesses already in the Group's portfolio at the start of the financial year, demonstrating continued commercial demand for the niche technologies and expert services SDI provides. The newly acquired Chell Instruments business also delivered a contribution in line with the Board's expectations for the financial year. 

Strategy

The Group's strategy continues to be one of buy and build adding carefully selected acquisitions, ideally funded by cash and a debt facility. The Group's policy is to acquire niche technology companies within the digital imaging and sensing and control sectors. To obtain immediate, continuing earnings enhancements, we only acquire businesses with complementary technologies that have long-lasting profits and cashflows. In the current financial climate, there may be greater opportunities for purchasing companies requiring a rapid sale and we would expect to acquire at least one business in the coming financial year.

The need for digital imaging and sensing and control products, particularly in the life science and medical industries, remains robust and there has been strong demand for several of the Group's products for use in the fight against the COVID-19 pandemic. Since our businesses trade globally, we do expect volatility in some markets caused by the pandemic to have an impact in the current financial year. Long-term market drivers such as the global expansion of automation and in-process measurements, as well as medical and pharmaceutical research, means many of our technologies and services will be increasingly required especially by original equipment manufacturers (OEMs) with which SDI companies have long-term supply contracts.

Delivering returns to our shareholders is a key objective of the SDI Group, and with the uncertainty arising from the global pandemic, the Group has been particularly focused on reducing SDI's overall costs. These included a cut of 33% in all SDI Board salaries and fees for a period of three months. The Group has also furloughed 17% of its staff with Government support, ensuring the retention of skilled staff for the future. Due to the current global pandemic the Board has decided not to pay a dividend for the financial year 2020 but will review again in 2021.

Team

The pleasing results achieved during the 2019-2020 financial year are due to the hard work of our staff. Since the lockdown came into force on 23 March 2020, the Group is proud to confirm that all companies remained open for business despite challenging working conditions. We have taken all necessary steps to protect the health of our employees, clients, and suppliers. Protocols have been introduced in the workplace and, where possible, staff have been working from home. The Board is extremely proud of the way the Group's employees have adapted to their changing working conditions and is grateful to them for their contribution to this year's positive performance.

Outlook and COVID-19

SDI Group has started the current year in a strong financial position and a number of our companies have seen increased demand for medical products which are being used to address the COVID-19 challenges. Other companies within the Group face some uncertainty and a downturn in orders although all our manufacturing facilities remain in operation. There are early signs of a return to normality in trading and overall SDI remains profitable and cash generative. SDI continues to seek acquisitions and looks forward to growing organically and through acquisition as conditions improve.

Ken Ford

Chairman

20 July 2020

Chief Executive's Operating Report

Group revenues for the financial year ended 30 April 2020 increased by 41% from £17.4 million to £24.5 million. This reflects organic growth and the full year contributions of Fistreem International, Thermal Exchange, Graticules Optics and MPB Industries, all acquired during 2018/2019.  During this financial year, we acquired one new company, Chell Instruments, at a cost of £5.2 million for the business. Acquisition costs were funded by existing cash flows from SDI companies and a bank loan due for repayment in April 2023.

Revenues and profit

SDI's nine digital imaging brands delivered £11.1 million revenue and a 21% operating profit during the 2019/2020 financial year. Revenues have been enhanced by organic growth and full year contributions of Fistreem and Graticules Optics. Synoptics also had an outstanding year achieving the highest profit the company has reported in eight years.

Atik Cameras, the largest business in the SDI Group, achieved profits which were in line with budget for the year. Demand for products from the Atik companies was robust across all global markets until March 2020, when orders began to slow due to the global pandemic and lockdown, resulting in a decline in orders from Atik's main US-based OEM customer. This reduction in orders is however being replaced by an increase in orders from another OEM to supply cameras for a system used in COVID-19 detection. 

Our six sensors and control brands grew from £8.0 million to £13.4 million in revenue, an increase of 70% in this financial year. Revenues have been enhanced by the full year contribution of MPB Industries and Thermal Exchange and part year revenues from Chell Instruments, as well as organic growth of existing companies within the division during the period. The segment adjusted operating profit increased by 41% to £3.0 million, or 23% of sales.

Basic earnings per share increased by 27% from 2.10p to 2.66p; fully diluted earnings per share also improved by 25% to 2.56p (2019: 2.05p).

Operations

SDI is continually investing in improving its existing products, as well as developing new technologies and additional manufacturing capacity where required.

Atik Cameras' new larger production site in Lisbon, Portugal became operational in the first quarter of 2020 and has allowed implementation of efficient, batch production. Since the facility is double the size of its previous manufacturing site, this has enabled social distancing measures to be put in place, allowing staff to continue safely producing cameras without interruption.

Orders for cameras from Atik's main OEM customer, a major US life science laboratory supplier, decreased from March 2020 during the pandemic. However, these have been replaced by orders for low-light cameras from another major OEM manufacturer of real-time RT-PCR systems (DNA amplification), used to detect the SARS-COV-2 virus which causes COVID-19. Atik, which has worked with this OEM supplier for three years, has increased camera production for them by approximately 10-fold. Atik forecasts it will continue to supply at this increased rate for the next 6-9 months, enabling Atik production to continue at full pace. 

The Synoptics Group of companies had a good year for orders of its Syngene DNA imaging systems in India, the US and Europe and has also sold three Synbiosis AutoCOL systems meeting revenue targets before March 2020. The AutoCOL is a new, large fully automated system for colony counting. Two of these will be shipped to a major contract research organization, where they will be used for vaccine research and since interest remains high in this new system, Synoptics forecasts more orders when research laboratories are again fully operational.

Fistreem's technology was also successfully transferred to the Synoptics manufacturing site and in 2020, began OEM production of its water purification systems for a major US life science supplier. Since Fistreem products include a number of associated consumables, its addition to Synoptics is providing a steady flow of orders, which is helping Synoptics increase sales and profitability.

This year we have invested in MPB, one of our newer companies, putting in place new material requirements planning (MRP) and IT systems, as well as purchasing glass-washing automation and tooling technology. This has enabled MPB to take on a major contract from medical devices company, Penlon, to supply 30,000 human anaesthetic variable area flowmeters for production of Rapidly Manufactured Ventilator Systems as part of the VentilatorChallengeUK consortium.

The consortium, which includes MPB alongside Penlon and over 30 other UK manufacturers, has seen significant cross industry collaboration and effort to deliver two different models of ventilator into the UK's National Health Service (NHS) to help treat patients in UK hospitals suffering with COVID-19.

MPB has worked with Penlon for 25 years and has increased its supply rate 20-fold to meet critical delivery timescales. To fulfil this contract, MPB staff have responded heroically to meet this challenge with the contract signed during the last quarter of the 2019-2020 financial year. MPB has also had assistance from engineers seconded from Ford Motor Company whom they have trained in glass tube forming, as well as time and motion experts to improve the productivity of their manufacturing process.

The additional investment SDI has made into MPB has strengthened the company's manufacturing position. MPB has already had enquiries from other medical device companies about supplying tubes for ventilators, making their business more resilient and providing growth opportunities going into the new financial year.

Chell Instruments (acquired in November 2019) has had a successful financial period since joining SDI and the Board believes the company has integrated well into the Group. One of the main highlights since the acquisition has been the design and delivery to an aggressive timeline of the nanoDaq-LT - the smallest and lightest pressure scanner currently on the market. Chell engineers redesigned the electronics and case, and manufactured and calibrated 30 units of the nanoDaq-LT within six weeks, for a major Formula One racing car manufacturer. The pressure scanner performed well at Formula One testing sessions in Barcelona in March 2020.

Towards the end of the financial year, orders from the aerospace and automotive industries had begun to slow due to the global pandemic and lockdown but work in Chell's calibration laboratory began increasing. Chell forecasts that this trend will continue into the next quarter as their calibration laboratory is working with more medical ventilator and oxygen sensor suppliers to test and calibrate their equipment. To date, this is providing sufficient workflow and revenues to compensate for order losses in other areas of the Chell business.

Acquisitions

The UK is a centre of excellence for product innovation and manufacturing with world-leading businesses in many niches of digital imaging and sensing and control sectors. As a buy and build Group, the acquisition of businesses with complementary technologies is key to our success. The SDI Group has a reputation as a supportive buyer that trusts subsidiary management teams with their day-to-day operations. Our acquisition of Chell Instruments this year for £5.2 million, has added a new manufacturing site with calibration expertise and world-class engineering capability in vacuum, gas flow and pressure measurement and control. To date our new acquisition has added £2.0 million of revenue to the Group in this financial year, and has contributed positively to earnings in the period.

Mike Creedon

Chief Executive Officer

20 July 2020

Strategic Overview

SDI Group is an AIM-quoted group specialising in the acquisition and development of a portfolio of companies that design and manufacture products for use in digital imaging and sensing and control applications in science, technology and medical markets. Corporate expansion is being pursued, both through organic growth within its subsidiary companies and through the acquisition of high-quality businesses with established reputations in global markets.

The Board believes there are many businesses operating within the market, a number of which have not achieved critical mass, and that presents an ideal opportunity for consolidation. This strategy will be primarily focused within the UK but, where opportunities exist, acquisitions in Europe and the United States and elsewhere will also be considered, particularly if these also enable geographic expansion of our existing businesses.

We intend to continue to buy stand-alone businesses as well as smaller entities and technology acquisitions which bolt onto our existing ones.  Our track record over the last six years has been good, with nine businesses acquired across our digital imaging and sensors and controls segments.

An important element of our strategy is that we are known to be a good acquirer, able to help sellers to achieve a sale quickly and easily, and without surprises.

We keep a lean headquarters, and our businesses are run by seasoned local management with broad discretion within defined limits.  Our aim is to grow them, profitably, and we seek to provide them with the resources necessary to grow.  Acquired businesses often find that they can grow faster within the SDI Group than they were prepared to do under private ownership, and they are able to learn from and share experience with other companies in the Group.

Our current businesses fall broadly into two segments, which we call Digital Imaging and Sensors & Control, and within these groupings there are significant commonalities of applications, industries served and technologies employed.  This provides additional opportunity for knowledge sharing, which we encourage.

Growth in revenues and profit within our businesses depends on both technology advancement and seeking new customers, often by expanding geographical reach, and the Board sees geographical expansion as a driver of organic growth for the future.

By lowering the cost of capital of businesses we acquire and by facilitating their profitable growth, our business model has demonstrated that it can provide good returns to shareholders and can be scaled into the future.

Key Performance Indicators

A range of financial key performance indicators are monitored on a monthly basis against budget by the Board and by management, including order pipeline, revenue, gross profit, costs, adjusted operating profit, and cash. 

In support of our acquisition strategy as outlined above, we monitor our acquisition pipeline, including any prospects that fail to progress.  Post-acquisition, the Board discusses integration progress, and monitors financial performance against our initial plans.  Over a longer period, we monitor the return on total invested capital of all of our businesses.

The Board regularly discusses progress in all major research and development and other projects with project and business leaders, including with respect to cost, timelines and adherence to the projects' initial objectives.

Additionally, the Board reserves a specific agenda item for discussion of health and safety and other employee welfare-related issues.

Consolidated income statement and statement of comprehensive income

		Note		2020 £'000		2019 £'000
	Revenue	3		24,498		17,427
	Cost of sales			(7,899)		(5,902)
	Gross profit			16,599		11,525
	Other income			19		-
	Operating expenses			(13,107)		(9,327)
	Analysed as:
	Reorganisation costs		(110)		(124)
	Share based payments		(276)		(136)
	Acquisition and fundraising costs		(58)		(288)
	Amortisation of acquired intangible assets		(647)		(356)
	Expected credit loss		(165)		(123)
	Other operating costs		(11,851)		(8,300)
	Operating expenses		(13,107)		(9,327)
	Operating profit			3,511		2,198
	Net financing expenses			(254)		(77)
	Profit before tax	4		3,257		2,121
	Income tax	5		(666)		(209)
	Profit for the year			2,591		1,912
	Earnings per share
	Basic earnings per share	8		2.66p		2.10p
	Diluted earnings per share	8		2.56p		2.05p

All activities of the Group are classed as continuing.

	2020		2019
	£'000		£'000
Profit for the year	2,591		1,912
Other comprehensive income
Items that will subsequently be reclassified to profit and loss:
Exchange differences on translating foreign operations	41		31
Total comprehensive income for the year	2,632		1,943

Consolidated Balance Sheet

	Note			2020	2019
				£'000	£'000
Assets
Intangible assets				21,650	17,194
Property, plant and equipment				3,901	767
Deferred tax asset				246	180
				25,797	18,141
Current assets
Inventories				3,728	2,576
Trade and other receivables				3,617	3,340
Cash and cash equivalents				5,290	2,494
				12,635	8,410
Total assets				38,432	26,551
Liabilities
Non-current liabilities
Borrowings	7			10,376	4,016
Deferred tax liability				2,134	1,448
				12,510	5,464
Current liabilities
Trade and other payables				3,350	3,280
Provisions for warranties				85	11
Borrowings	7			1,910	84
Current tax payable				513	626
				5,858	4,001
Total liabilities				18,368	9,465
Net assets				20,064	17,086
Equity
Share capital				975	972
Merger reserve				3,030	3,030
Share premium account				8,746	8,696
Own shares held by Employee Benefit Trust				-	(17)
Share based payment reserve				467	284
Foreign exchange reserve				181	140
Retained earnings				6,665	3,981
Total equity				20,064	17,086

Consolidated statement of cashflows

	Note	2020	2019
		£'000	£'000
Operating activities
Net profit for the year		2,591	1,912
Depreciation		831	231
Amortisation		1,189	971
Finance costs and income		254	77
Impairment of intangible assets		22	-
Increase / (decrease) in warranty provision		74	(12)
Taxation in the income statement		666	209
Employee share-based payments		276	136
Operating cash flows before movement in working capital		5,903	3,524
(Increase) / decrease in inventories		(539)	65
Decrease / (increase) in trade and other receivables		726	(415)
(Decrease) / increase in trade and other payables		(921)	446
Cash generated from operations		5,169	3,620
Interest paid		(253)	(77)
Income taxes paid		(786)	(319)
Cash generated from operating activities		4,130	3,224
Investing activities
Capital expenditure on fixed assets		(506)	(419)
Sale of property, plant and equipment		-	45
Expenditure on development and other intangibles		(582)	(591)
Acquisition of subsidiaries, net of cash		(5,182)	(6,668)
Net cash used in investing activities		(6,270)	(7,785)
Financing activities
Finance leases net repayments	7	(511)	(30)
Proceeds from bank borrowing	7	6,496	3,600
Repayment of borrowings	7	(1,143)	(970)
Issues of shares and proceeds from option exercise		80	2,449
Net cash from financing		4,922	5,049
Net changes in cash and cash equivalents		2,782	488
Cash and cash equivalents, beginning of year		2,494	2,007
Foreign currency movements on cash balances		14	(1)
Cash and cash equivalents, end of year		5,290	2,494

Consolidated statement of changes in equity

		Share capital		Merger reserve		Foreign exchange			Share premium				Own shares held by EBT				Share based payment reserve			Retained  earnings		Total
		£'000		£'000		£'000			£'000				£'000				£'000			£'000		£'000
Balance at 30 April 2018		896		3,030		109			6,390				(82)			148				2,069	12,560
Shares issued		76		-		-			2,306				65			-				-	2,447
Share based payments		-		-		-			-				-			136				-	136
Transactions with owners		76		-		-			2,306				65			136				-	2,583
Profit for the year		-		-		-			-				-			-				1,912	1,912
Foreign exchange on consolidation of subsidiaries		-		-		31			-				-			-				-	31
Total comprehensive income for the period		-		-		31			-				-			-				1,912	1,943
Balance at 30 April 2019		972		3,030		140			8,696				(17)			284				3,981	17,086
Restatement for IFRS 16 ("Leases")			-	-			-			-				-				-		-		-
Adjusted balances at 30 April 2019			972	3,030			140			8,696				(17)				284		3,981		17,086
Shares issued			3	-			-			50				17				-		-		70
Share based payment transfer			-		-			-			-				-				(93)	93		-
Share based payments			-		-			-			-				-				276	-		276
	Transactions with owners	3		-		-			50				17				183			93		346
	Profit for the year	-		-		-			-				-				-			2,591		2,591
	Foreign exchange on consolidation of subsidiaries	-		-		41			-				-				-			-		41
	Total comprehensive income for the period	-		-		41			-				-				-			2,591		2,632
	Balance at 30 April 2020	975		3,030		181			8,746				-				467			6,665		20,064

1.  CHANGES IN ACOUNTING POLICIES

STANDARDS ADOPTED FOR THE FIRST TIME

IFRS 16 'Leases'

IFRS 16 'Leases' replaces IAS 17 'Leases' along with three Interpretations (IFRIC 4 'Determining whether an Arrangement contains a Lease', SIC 15 'Operating Leases-Incentives' and SIC 27 'Evaluating the Substance of Transactions Involving the Legal Form of a Lease').

The adoption of this new Standard has resulted in the Group recognising a right-of-use asset and related lease liability in connection with all former operating leases except for those identified as low-value or having a remaining lease term of less than 12 months from the date of initial application. The new Standard has been applied using the modified retrospective approach, with the cumulative effect of adopting IFRS 16 being recognised in equity as an adjustment to the opening balance of retained earnings for the current period. Prior periods have not been restated.

For contracts in place at the date of initial application, the Group has elected to apply the definition of a lease from IAS 17 and IFRIC 4 and has not applied IFRS 16 to arrangements that were previously not identified as lease under IAS 17 and IFRIC 4. The Group has elected not to include initial direct costs in the measurement of the right-of-use asset for operating leases in existence at the date of initial application of IFRS 16, being 1 May 2019. At this date, the Group has also elected to measure the right-of-use assets at an amount equal to the lease liability adjusted for any prepaid or accrued lease payments that existed at the date of transition.

Instead of performing an impairment review on the right-of-use assets at the date of initial application, the Group has relied on its historic assessment as to whether leases were onerous immediately before the date of initial application of IFRS 16. On transition, for leases previously accounted for as operating leases with a remaining lease term of less than 12 months and for leases of low-value assets the Group has applied the optional exemptions to not recognise right-of-use assets but to account for the lease expense on a straight-line basis over the remaining lease term.

For those leases previously classified as finance leases, the right-of-use asset and lease liability are measured at the date of initial application at the same amounts as under IAS 17 immediately before the date of initial application. On transition to IFRS 16 the weighted average incremental borrowing rate applied to lease liabilities recognised under IFRS 16 was 3.1%. The following is a reconciliation of the financial statement line items from IAS 17 to IFRS 16 at 1 May 2019:

	Carrying amount at 30 April 2019 £'000	Reclassification £'000	IFRS16 carrying amount at 1 May 2019 £'000
Tangible fixed assets	767	2,477	3,244
Trade and other receivables	3,340	(22)	3,318
Lease liabilities	(100)	(2,455)	(2,555)

The following is a reconciliation of total operating lease commitments at 30 April 2019 (as disclosed in the financial statements to 30 April 2019) to the lease liabilities recognised at 1 May 2019:

	£'000
Total operating lease commitments disclosed at 30 April 2019	2,706
Recognition exemptions:
· Adjustment to commitment disclosures	282
Operating lease liabilities before discounting	2,988
Discounted using incremental borrowing rate of 3.1%	(533)
Total lease liabilities recognised under IFRS 16 at 1 May 2019	2,455

2.  ALTERNATIVE PERFORMANCE MEASURES

The Group uses Adjusted Operating Profit, Adjusted Profit Before Tax, Adjusted Diluted EPS and Net Operating Assets as supplemental measures of the Group's profitability and investment in business-related assets, in addition to measures defined under IFRS. The Group considers these useful due to the exclusion of specific items that are considered to hinder comparison of underlying profitability and investments of the Group's segments and businesses, and is aware that shareholders use these measures to evaluate performance over time.  The adjusting items for the alternative measures of profit are either recurring but non-cash charges (share-based payments and amortisation of acquired intangible assets) or exceptional items (reorganisation costs and acquisition and fundraising costs).

The following table is included to define the term Adjusted Operating Profit:

	2020 £'000	2019 £'000
Operating Profit (as reported)	3,511	2,198
Adjusting items (all costs):
Non-underlying items
Share based payments	276	136
Amortisation of acquired intangible assets	647	356
Exceptional items
Reorganisation costs	110	124
Acquisition and fundraising costs	58	288
Total adjusting items	1,091	904
Adjusted Operating Profit	4,602	3,102

Adjusted Profit Before Tax is defined as follows:

	2020 £'000	2019 £'000
Profit before tax (as reported)	3,257	2,121
Adjusting items (all costs):
Non-underlying items
Share based payments	276	136
Amortisation of acquired intangible assets	647	356
Exceptional items
Reorganisation costs	110	124
Acquisition and fundraising costs	58	288
Total adjusting items	1,091	904
Adjusted Profit Before Tax	4,348	3,025

Adjusted EPS is defined as follows:

	2020   £'000	2019   £'000
Profit for the year	2,591	1,912
Adjusting items (all costs):
Non-underlying items
Share based payments	276	136
Amortisation of acquired intangible assets	647	356
Exceptional items
Reorganisation costs	110	124
Acquisition and fundraising costs	58	288
Total adjusting items	1,091	904
Less taxation on adjusting items calculated at the UK statutory rate	(207)	(172)
Adjusted profit for the year	3,457	2,644
Divided by diluted weighted average number of shares in issue	101,206,148	93,330,500
Adjusted Diluted EPS	3.43p	2.83p

The following table is included to define the term Net Operating Assets:

	2020 £'000	2019 £'000
Net assets	20,064	17,086
Deferred tax asset	246	180
Corporation tax asset	52	-
Cash and cash equivalents	5,290	2,494
Borrowings and lease liabilities (current and non-current)	(12,286)	(4,100)
Deferred tax liability	(2,134)	(1,448)
Current tax payable	(513)	(626)
Total adjusting items within Net assets	(9,345)	(3,500)
Net Operating Assets	29,409	20,586

3.  SEGMENT ANALYSIS

The Digital Imaging segment incorporates the Synoptics brands Syngene, Synbiosis, Synoptics Health and Fistreem, the Atik brands Atik Cameras, Opus and Quantum Scientific Imaging, and the Graticules Optics business.  These businesses share significant characteristics including customer application, technology, and production location.  Revenues derive from the sale of instruments, components for OEM customers' instruments, from accessories and service and from licence income.

The Sensors & Control segment combines our Sentek, Astles Control Systems, Applied Thermal Control, Thermal Exchange, MPB Industries and Chell Instruments businesses.  All of these businesses provide products that enable accurate control of scientific and industrial equipment.  Their revenues also derive from the sale of instruments, major components for OEM customers' instruments, and from accessories and service.

The Board of Directors reviews operational results of these segments on a monthly basis, and decides on resource allocations to the segments and is considered the Group's chief operational decision maker. 

	2020 Total £'000	2019 Total £'000
Revenues
Digital Imaging	11,050	9,434
Sensors & Control	13,448	7,993
Group	24,498	17,427
Adjusted Operating Profit
Digital Imaging	2,382	1,954
Sensors & Control	3,028	2,165
Other	(808)	(1,017)
Group	4,602	3,102
Amortisation of acquired intangible assets
Digital Imaging	(182)	(50)
Sensors & Control	(465)	(306)
Other	-	-
Group	(647)	(356)

Analysis of amortisation of acquired intangible assets has been included separately as the Group considers it to be an important component of profit which is directly attributable to the reported segments.

The Other category includes costs which cannot be allocated to the other segments, and consists principally of Group HQ costs.

	2020 Total £'000	2019 Total £'000
Operating assets excluding acquired intangible assets
Digital Imaging	6,281	4,828
Sensors & Control	5,993	3,020
Other	120	27
Group	12,394	7,875
Acquired intangible assets
Digital Imaging	5,370	5,552
Sensors & Control	15,068	10,451
Group	20,438	16,003
Operating Liabilities
Digital Imaging	(1,190)	(1,281)
Sensors & Control	(2,087)	(1,361)
Other	(158)	(649)
Group	(3,435)	(3,291)
Net operating assets
Digital Imaging	10,550	9,099
Sensors & Control	19,042	12,110
Other	(183)	(623)
Group	29,409	20,586

The geographical analysis of revenue by destination, analysis of revenue by product or service, and non-current assets by location are set out below:

Revenue by destination of external customer	2020	2019
	£'000	£'000
United Kingdom (country of domicile)	10,249	6,624
Europe	5,129	3,216
Americas	3,290	2,805
Asia	4,492	4,539
Rest of World	1,338	243
	24,498	17,427

Revenue by product or service	2020	2019
	£'000	£'000
Instruments and spare parts	23,894	16,867
Service	604	560
	24,498	17,427

Non-current assets by location	2020	2019
	£'000	£'000
United Kingdom	25,292	17,943
Portugal	412	106
America	227	92
	25,931	18,141

4.  PROFIT BEFORE TAXATION

Profit for the year has been arrived at after charging:

		2020	2019
		£'000	£'000
Amortisation and write-down of intangible assets		1,189	971
Depreciation charge for year - Right-of-use assets		490	-
Depreciation charge for year - Other assets		342	234
Auditor's remuneration Group:
-  Audit of Group accounts		18	34
Fees paid to the auditor and its associates in respect of other services:
-  Audit of Company and of subsidiaries		151	82
-  Tax compliance services		34	14
-  Audit related assurance services		12	10
Currency exchange loss		9	16
Reorganisation costs		110	124
Acquisition and fundraising costs		58	288

5.  TaxATION

		2020	2019
		£'000	£'000
Corporation tax:
Prior year corporation tax adjustment Current tax charge		17 544	37 469
		561	506
Deferred tax expense/(income)		105	(297)
Income tax charge		666	209

Reconciliation of effective tax rate

		2020	2019
		£'000	£'000
Profit on ordinary activities before tax		3,257	2,121
Profit on ordinary activities multiplied by standard rate of Corporation tax in the UK of 19% (2019: 19%)		619	403
Effects of:
Expenses not deductible for tax purposes		22	156
Additional deduction for R&D expenditure		(135)	(136)
Share based payment expense in excess of share scheme deductions		-	(176)
Prior year tax adjustments		17	37
Update deferred tax liabilities and assets to enacted future tax rate of 19% (2019: 17%)		158	(82)
Other		(15)	7
		666	209

The Group takes advantage of the enhanced tax deductions for Research and Development expenditure in the UK and expects to continue to be able to do so. 

6.  Leases

Lease liabilities are presented in the balance sheet as follows:

				2020	2019
				£'000	£'000
Current				539	84
Non-current				2,414	16
				2,953	100

Note 1 provides the impact of the adoption of IFRS 16 (Leases) at 30 April 2019.  The lease liabilities shown for 2020 include both leases which were formerly classified as operating leases and leases which were formerly classified as finance leases.  The lease liabilities shown for 2019 exclude leases formerly classified as operating leases.

The Group has leases for the main warehouses and offices, and for some vehicles and equipment. With the exception of short-term leases and leases of low-value underlying assets, each lease is reflected on the balance sheet as a right-of-use asset and a lease liability. Variable lease payments which do not depend on an index or a rate are excluded from the initial measurement of the lease liability and asset. The Group classifies its right-of-use assets in a consistent manner to its property, plant and equipment.

Each lease generally imposes a restriction that, unless there is a contractual right for the Group to sublet the asset to another party, the right-of-use asset can only be used by the Group. Leases are either non-cancellable or may only be cancelled by incurring a substantial termination fee. For leases over office buildings and factory premises the Group must keep those properties in a good state of repair and return the properties in their original condition at the end of the lease. Furthermore, the Group must insure items of plant and machinery and incur maintenance fees on such items in accordance with the lease contracts.

The lease liabilities are secured by the related underlying assets. Total contractual undiscounted lease liabilities at 30 April 2020 were as follows:

				2020	2019
				£'000	£'000
Within one year				583	88
Within two to five years				1,668	19
After five years				1,255	-
Total undiscounted lease liabilities				3,506	107

Lease payments not recognised as a liability

The Group has elected not to recognise a lease liability for short term leases (leases with an expected term of 12 months or less) or for leases of low value assets. Payments made under such leases are expensed on a straight-line basis. In addition, certain variable lease payments are not permitted to be recognised as lease liabilities and are expensed as incurred.

At 30 April 2020 the Group had not committed to any leases which had not yet commenced.

7.  Borrowings

Borrowings are repayable as follows:

		2020	2019
		£'000	£'000
Within one year
Bank finance		1,371	-
Leases		539	84
		1,910	84
After one and within five years
Bank finance		7,962	4,000
Leases		2,414	16
		10,376	4,016
Total borrowings		12,286	4,100

Bank finance relates to amounts drawn down under the Group's bank facility with HSBC Bank plc, which is secured against all assets of the Group. The facility consists of a revolving facility of £5m and an amortising facility which reduces in quarterly instalments from £4,800k when it was taken out in November 2019 to zero by April 2023, when the current agreement expires.  The facility has covenants relating to leverage (net debt to EBITDA), interest coverage, and cashflow to debt service. 

In March and April 2020, as a precautionary response to the COVID-19 pandemic, the Group requested and was granted a deferment (to April 2023) of the quarterly repayment due in April 2020, and a waiver of the cashflow to debt service covenant for two quarters.  Debt under the amortising facility at 30 April 2020 was £4,457k. The Group also drew down substantially all of its revolving facility, with loans denominated in UK Pounds, Euros and US Dollars totalling £4,876k, to maximise available cash balances. Leases in 2019 include only those leases formerly classified as finance leases. 

8.  Earnings per share

The calculation of the basic earnings per share is based on the profits attributable to the shareholders of SDI Group plc divided by the weighted average number of shares in issue during the period. All profit per share calculations relate to continuing operations of the Group.

	Profit  attributable to shareholders £'000	Weighted average number of shares	Earnings per share amount in pence
Basic earnings per share:
Year ended 30 April 2020	2,591	97,277,721	2.66
Year ended 30 April 2019	1,912	91,209,753	2.10
Dilutive effect of share options :
Year ended 30 April 2020		3,928,426
Year ended 30 April 2019		2,120,747
Diluted earnings per share:
Year ended 30 April 2020	2,591	101,206,148	2.56
Year ended 30 April 2019	1,912	93,330,500	2.05

At the yearend, there were 425,000 share option which were anti-dilutive but may be dilutive in the future.

 

END

 

 

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